Even with careful planning and diligent saving, some parts of retirement planning can be out of our control. Factors like longevity, rising medical costs and the ups and downs of the market can have an impact. But while you can’t plan for the unexpected per se, there are ways you can manage these risks and protect your retirement income. Here’s a look at four common retirement risks and how to address them.
Longer life expectancy
Americans are living longer now than ever before. Government figures put average life expectancy at about 79 years old, but many could live much longer than that, with experts suggesting that planning for retirement living costs into your 90s is may be prudent.
There are many benefits to living longer, but it also means carefully considering strategies to avoid outliving your savings. One strategy to consider is to delay the age you start collecting Social Security benefits. You are eligible to start collecting Social Security at age 62, but the longer you wait, the larger your benefit will be. For example, if you turn 62 in 2021, and you can hold out claiming your benefit until age 70, you’ll increase your monthly payment by 77 percent.
Medical costs and long-term care
Another implication of living longer is increased health care costs. On average, a healthy 65-year-old couple can expect to spend more than $300,000 on health care alone in retirement. While Medicare covers many medical expenses you’re likely to face, it doesn’t cover everything, including the cost of long-term care.
Long-term care refers to assistance needed for daily activities, like eating, bathing or dressing. This type of care can be provided at home or at an assisted living facility like a nursing home. Those age 65 and older have a 70 percent chance of needing some form of long-term care as they age.
Even if you don’t anticipate needing long-term care anytime soon, it may be worth considering long-term care insurance now in case you need these services in the future. Consider purchasing coverage well before you retire as it typically becomes more expensive as you age.
Market risk
Market fluctuations are a natural part of the cycle, yet a downward turn right before retirement can lower the value of your investments just when you need them most. As you near retirement, consider reevaluating your investments to account for how much risk you really need to take in relation to your entire financial picture.
Inflation
Inflation reduces your spending power and can have a big effect over a 30-year (or longer) retirement. We find that having a healthy but balanced allocation to growth assets, like stocks, will help investors combat the negative effects of inflation over time. Keeping pace with inflation allows a retiree to continue maintaining their existing lifestyle well into retirement.
Sources:
https://www.ssa.gov/pubs/EN-05-10147.pdf
https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
https://acl.gov/ltc/basic-needs/how-much-care-will-you-needhttps://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm#:~:text=Treasury%20Inflation%2DProtected%20Securities%2C%20or,original%20principal%2C%20whichever%20is%20greater.
